This website use cookies and similar technologies to improve the site and to provide customised content and advertising. By using this site, you agree to this use. To learn more, including how to change your cookie settings, please view our Cookie Policy
Pocketmags Digital Magazines
EU
Pocketmags Digital Magazines
   You are currently viewing the European Union version of the site.
Would you like to switch to your local site?
Digital Subscriptions > The Hedge Fund Journal > Issue 132 – May 2018 > Fed Unwinding the Bernanke Experiments

Fed Unwinding the Bernanke Experiments

Progress report

COMMENTARY

Raising rates and shrinking its balance sheet, the Federal Reserve (Fed) is now part way into the process of unwinding the Bernanke emergency policies following the Great Recession.

So far, the well-telegraphed approach to unwinding quantitative easing and raising rates has had no discernible impact on the pattern of real GDP, inflation or the labor markets. While Fed actions are only a part of the cause, US Treasury yields have risen and equities have become more volatile.

In this research report, we will examine the evolution of Fed policy as the Federal Open Market Committee (FOMC) seeks to create a sustainable approach to managing an economy no longer requiring emergency measures. Specifically, we will study:

• The desired long-term size of the balance sheet;

• Definition of a neutral monetary policy;

• Changing the approach to setting the interest rate for required and excess reserves; and

• Possibility of targeting the Secured Overnight Financial rate (SOFR) instead of the effective fed funds rate.

The Fed may have some interesting surprises up its sleeve for 2019. The pieces of this puzzle need to be put together in a precise order. As one contemplates the optimal size of the Fed’s balance sheet, one is led to an equally important examination of what constitutes a neutral monetary policy. Appreciating the nuances of neutral monetary policy forms the foundation of challenging the way the Fed pays interest on reserves and puts emphasis on the inadequacies of the federal funds rate as the primary policy target rate. It is going to be a very interesting debate.

READ MORE
Purchase options below
Find the complete article and many more in this issue of The Hedge Fund Journal - Issue 132 – May 2018
If you own the issue, Login to read the full article now.
Single Issue - Issue 132 – May 2018
€129.99
Or 12999 points
6 Month Digital Subscription
Only € 140.00 per issue
€699.99
Or 69999 points

View Issues

About The Hedge Fund Journal

Informing the Hedge Fund Community. With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.